This case has far reaching implications for commercial contractors (and their insurers), involved in construction defect disputes. Since most "construction defects" involve some violation of some provision of the building code, an owner now has two (2) years from the date of discovery of the defect (irrespective whether the contract statute of limitations has expired) to bring a cause of action against builders and their insurance companies.

Abraham v. T. Henry Construction, Inc., Or. App. __, WL 2766868 (2009)

The Court first addressed the homeowners' claim for breach of the implied warranty of habitability. In Washington, the doctrine of the implied warranty of habitability protects the first occupants of residential property against the "risk of fundamental defects in the structure of a home." However, in this case, each of the ten plaintiffs were not the original purchasers of homes from Harbour. The homeowners argued their claims were nonetheless valid because each had been assigned the original homeowners' claim. The Court ruled in favor of Harbour and held that the assignment did not cure the fact that the homeowners were not original purchasers.

Harbour next argued that the homeowners' claims for fraud and misrepresentation were barred by the economic loss rule. The economic loss rule applies to hold parties to their contractual remedies when a loss potentially implicates both tort and contract relief. The Court held that the homeowners' fraud and misrepresentation claims were contract based claims and barred by the economic loss rule. [However, the Court recognized that prior case law held that claims for fraudulent concealment were not barred by the economic loss rule].

Harbour was not so successful as to the homeowners' claims for CPA violations. The homeowners' alleged that Harbour's plainly deficient construction of the homes, together with Harbour's affirmative representations of high quality and workmanship, constituted an unfair or deceptive act of practice. The Court held that the homeowners had shown genuine issues of material fact for trial on the CPA claims.

The homeowners also alleged that Harbour had breached it contracts with the owners by violating its duty of good faith and fair dealing. The Court recognized that the duty of good faith and fair dealing obligates the parties to cooperate with each other so each may obtain the full benefit of performance. But, the duty of good faith does not "inject substantive terms into the parties' contract." Rather, it "requires only that the parties perform in good faith the obligations imposed by their agreement." The duty exists only in relation to performance of a specific contract term. In this case, the Court held that Harbour did not breach a specific term of its agreement with the homeowners and therefore their claims for breach of the duty of good faith and fair dealing failed as a matter of law.

During the course of the project, Beco alleged that J-U-B improperly tested asphalt with the intent of promoting failed tests, unreasonably shut down the project causing delays to Beco, and unreasonably delayed the commencement of the project.  Beco alleged breach of contract, negligence, and intentional interference with contract claims against J-U-B.  Beco's breach of contract claim and negligence claims against Beco were dismissed early in the case, and the only issue on appeal was whether Beco could make a claim for intentional interference against J-U-B.

The Idaho Supreme Court reasoned that Beco could not make a claim against J-U-B for intentional interference.  In Idaho, a party cannot make a claim for intentional interference against another party to the same contract.  The cause of action is only applicable when a third party interferes with one party's contract with another.  In this case, J-U-B was acting as an agent of the City on the project because it was designated as the owner's representative and tasked with administering the general contract.  The Court reasoned that because J-U-B was the City's agent, and the actions that were the basis of Beco's claims occurred during J-U-B's administration of the contract, J-U-B was not a third party to the general contract, and therefore, Beco could not make a claim against J-U-B for intentional interference. 

The case represents the difficult task that general contractors have in making claims against the design professionals on projects.  Because the contractor does not have a contract with the design professional, it cannot allege breach of contract against the design professional.  In this case, Beco's sole remedy was to sue the City for breach of contract due to the actions caused by its agent, J-U-B. 

Court opinion:  Beco Constr. Co. v. J-U-B Engineers, Inc.

The Court of Appeals held that the award could not be modified absent an evident mathmatical miscalculation or error of law on the face of the arbitration award.  Powell failed to establish either and the Court denied Powell's request to modify the award.

 

The case is the first published case to interpret when dissolution occurs under Washington's Limited Liability Act, RCW 25.15 et seq., which was enacted in June 2006.  The question before the court was when is the "effective date of dissolution" for an LLC that has been administratively dissolved.  Under the statute, the statute of limitations for claims against LLCs is three years after the "effective date of dissolution."

The subcontractor in this case argued that the effective date of dissolution occurred when the subcontractor's LLC was administratively dissolved.  The general contractor argued that the effective date for an LLC that has been administratively dissolved did not occur until two years after administrative dissolution when the LLC's affairs have been "wound up" under RCW 25.15.270 and its certificate of formation is cancelled by the Secretary of State under RCW 25.15.290(4).

The Court of Appeals sided with the subcontractor and ruled that the "effective date of dissolution" occurred when the LLC was administratively dissolved.  Therefore, the three year statute of limitations began to run on the date of administrative dissolution.

The disputes arose from contract drawings which showed a set of steam prevacuum sterilizers enclosed within walls depicted by unlabeled double lines.  One drawing, that of equipment and furniture, had unlabeled double lines on both sides of, and enclosing, two sets of two vacuum steam sterilizer equipment.  Another drawing, the interior elevation plan, did not include any wall designations.  Dick Pacific took the position that the unlabeled double lines represented a wall or item of equipment that was to be supplied and installed by a follow-on contractor.  The technical specifications, however, called for stainless steel modular walls encasing the prevacuumed sterilizers.

Dick Pacific submitted a request for information to obtain the designation of the wall type.  The Corps responded that the technical specifications provided sufficient information and that no increase in the contract or time was justified for modular walls.  Dick Pacific submitted a proposed change order for stainless steel walls and indicated it would not proceed with the work unless directed.  The Corps. took the position that the modular walls did not constitute a change to the contract.  Dick Pacific, through its contractor ISEC, completed the walls and submitted a change order request for $99,479 for the construction and delay costs.  The Corps. denied Dick Pacific's request and the matter was appealed to the Armed Services Board of Contract Appeals (ASBCA).

One of Dick Pacific's arguments on appeal was that the Contract Documents were subject to more than one reasonable one interpretation, thus, the contract was ambiguous.  It reasoned that any contract ambiguity should trigger the order of precedence clause, which expressly stated that the contract drawings governed over the technical specifications.  The technical specifications were last in order of importance in the order of precedence clause.  The Corps. countered by arguing that despite the omission of a wall labeled in the drawings, the contract specifications and drawings read as a whole clearly required modular walls.  It contended that even if there were an ambiguity, Dick Pacific had a duty to make an inquiry or seek bid clarification.

The ASBCA found that the specifications and drawings reasonably read, as a whole, required modular walls for the sterilizers.  It relied primarily on several sections of the technical specifications that designated both sterilizers and modular walls as contractor installed equipment, defined the fabrication requirements for the walls and cited the wall layout on the drawings.  Although the drawings failed to show what type of wall was to be installed, the Board found that the depiction of the sterilizers on the drawings made it reasonably clear that modular walls were required in those locations.  The Board found no ambiguity in the contract.

This case provides important guidance to the industry on what is often a confusing issue.  Some parties think that an order of precedence clause creates an automatic solution to a contract interpretation dispute.  That is however not the case.  First the contractor must demonstrate that the contract documents are contradictory before it can resort to the order of precedents clause.  In this instance, the ASBCA found that the contract documents interpreted together, were not ambiguous and therefore, did not resort to the order of presence clause.

Dick Pacific/GHEMM JV, ASBCA No. 55806, 2007 WL 3265023

During dredging operations, the contractor encountered man-made debris in an area in which the boring logs indicated previously dredged sand.  The debris constituted burlap sand bags and clear plastic.  The materials snagged on the cutter teeth of the hydraulic dredge hindering the contractor's operations.  The contractor was forced to shut down the dredge for various periods to clean out (by hand) the sand bag and plastics that were clogging the pump.  In addition to the unforeseen man-made materials, the contractor encountered stiff clay in an area where the boring logs represented the clay would be "soft", causing the cutter head to completely halt rotation.  The contractor argued that these two conditions, the stiff clay and debris caused it to experience lower than anticipated production levels.

The contractor made a differing site conditions (DSC) claim for the down time caused by the unanticipated debris and dredging impact.  The Corps denied the claims arguing that the contractor should have anticipated the characteristics of the native soil and had the contractor done a site inspection before bid, it should have expected the higher density soils.  On appeal, the Armed Services Board of Contract Appeals (ASBCA) went through a detailed examination of the legal standards a contractor must meet to recover for a DSC claim involving soil that differs materially from that represented in the Contract Documents.  The ASBCA determined that the rocks, sand bags and plastic encountered were much more than listed in the Contract Documents, and that the contractor's reliance on the soil information was reasonable.  ASBCA also rejected the Corps' arguments that the contractor should have anticipated the stiff clay.  Finally, the Board endorsed the contractor's method of quantify its lost productivity.  The contractor used a "measured mile" approach, examining a period of time when the contractor's operations were unaffected by the differing site condition, with its productivity when it was affected.

Appeal of Bay West, Inc., 07-1 ASBCA ¶33569, ASBCA No. 54166 (2007)

On a school district project, the work was delayed by late issuance of a notice to proceed, the late procurement of an erosion and sedimentation permit, a failure to prepare a construction schedule until four months after the project had commenced.  When the construction manager recommended that a time extension be granted to the contractors (the project was built by trade contractors, no general contractor was hired, the construction manager was fired).  The trade contractors, when they were not granted a time extension, hired additional manpower to complete the job.  (accelerated)

The contractor, in calculating its claim compared the labor hours expended to complete the project before the acceleration commenced with the labor hours expended to complete the project after the acceleration.  Using the unimpacted earlier time frame as the "measured mile".  The court found this method of calculating damages credible.

James Corp. v. North Allegheny School District, 2007 WL 4208589 (PA Commonwealth, Nov. 30, 2007)

The Supreme Court reversed, and emphasized that, at most, the City's actions constituted "equivocal" evidence of waiver. "Equivocal conduct by its definition cannot be unequivocal" as required by Mike M. Johnson. Because the City on occasion expressly asserted it was not waiving its contractual defenses no juror could find the City unequivocally did the exact opposite. The Court further affirmed Mike M. Johnson and held continued settlement negotiations will not establish waiver, as such a finding would frustrate the settlement process.